Home Depot is spending a lot of money to become a bigger player online, but the results aren’t working out as well as the retailer had hoped. Home Depot reported revenue that missed forecasts Tuesday morning and lowered its sales outlook too.
Shares of Home Depot fell about 5% in early trading on the news, a move that is expected to cut into the broader market’s gains since Home Depot is one of the 30 members of the Dow.
Home Depot CEO Craig Menear said in a statement that some of the expected benefits from the company’s One Home Depot initiative “will take longer to realize than our initial assumptions.” The retailer announced in late 2017 that it was planning to spend $5.4 billion to more seamlessly integrate its brick-and-mortar stores with its digital operations.
As part of that plan, Home Depot has installed more lockers at the front of its stores so that people could “click and collect” — order online and then pick up their goods at the store.
Home Depot, like its top rival Lowe’s, has been a bit more immune from the threat from Amazon and other online retailers since home improvement shoppers, especially professional builders, typically want to see and feel the product they are buying instead of just having it shipped to them.
Still, the sales setback for Home Depot Tuesday will only put a small dent in what has otherwise been a solid year for the company. That’s despite the fact that Home Depot also lowered its 2019 sales outlook in August, citing concerns about lower lumber prices and worries about tariffs and the trade war with China hurting US consumers.
Shares of Home Depot are up nearly 40% so far in 2019, making it one of the top Dow performers and putting it comfortably ahead of the gains of Lowe’s, which will report its latest earnings on Wednesday. Lowe’s shares dipped Tuesday, too.
Home Depot executives acknowledged that the home improvement retail landscape is getting tougher.
“We see a continued escalated promotional environment in the marketplace,” said Home Depot chief financial officer Richard McPhail during a conference call with analysts. McPhail said competition for paint was particularly tough, which has led to lower prices.
But low interest rates have led to both healthy gains in consumer spending and helped fuel continued strength in the housing market. That’s why some analysts aren’t overly concerned.
“The consumer economy is not in a state of distress. We consider Home Depot something of a leading indicator of sentiment ” said Neil Saunders, managing director of GlobalData Retail, in a report.
Saunders added that Home Depot’s investments in digital “will pay dividends over time.”
But Lowe’s is having a relatively strong year too though. Shares are up 25% as the company is embarking on a turnaround plan under new CEO Marvin Ellison, a retail veteran who left struggling JCPenney in 2018 to take over Lowe’s. Ellison was a long-time exec at Home Depot before he joined JCPenney.
“There is no doubt that…Lowe’s has upped its game,” Saunders said in his report Tuesday.